Where an insolvent corporation is still "a going concern," the directors cannot be held personally liable, as for a breach of trust, because they have made a bonafide advantageous sale out and,out of the corporate assets, all of which have been attached, to one of the attaching creditors, on condition that he would cancel his own debt, and discharge the debts of· the other attaching creditors; the directors having no means with which to contest the llottachment suits,andthe transfer being advised by counsel.

2.

8.

The assths of such insolvent corporation cannot be followed by its creditors as a·trust fund in the hands of the attaching creditor.SAME-RIGHTS OF CREDITORS.

A creditor of an insolvent corporation will not be deprived of a lien ob· tained by him upon its assets by an attachment because at the time the writ was issued he knew that the corporation was insolvent.

M. W. Huff, for complainants. Boyle, Adam8 &- McKeighan. for defendants.
THAYER, J. From the averments of the bill, which have been sus1ained by the proof, it appears that the "Henry B.Pettes Importing Company," a Missouri business corporation, in February, 1886, and for some months prior thereto, was insolvent, but was still engaged in the prosecution of its ordinary business. It had had large dealings with the Provident Savings Bank, and owed the bank notes to the amount of $28,000. As partial security for such debt, the bank held certain personal property in pledge of the estimated value of about $10,000. The importing company also owed other persons, including the complainants, considerable sums of money for goods purchased. In February, 1886, one ofthe creditors of the importing company sued out an attachment against it, and caused it to be levied on certain property of the corporation. rrhereupon the Provident Savings Bank also sued out an attachment in the sum of $18,000, and caused the same to be levied. Six ()ther attachment suits immediately followed. By virtue of the various writs of attachment (which together amounted to $31,373) all of the property of the importing company then in its possession was seized. It is admitted that the directors of the importing company had no means of their own to employ counsel to defend against the attachment suits, and that they conferred with counsel on the subject of defending the suits, (to the extent, at least, of procuring a dissolution of the attachment liens,) and were advised that it was doubtful whether a dissolution ()f the attachments could be effected by making a defense. It is furthermore admitted that the board of directors were advised by counsel that in view of the difficulties in the way of defending the suits, and in view ()f the fact that the attached property would probably be sold at great

In Equity.

WHITE, POTTER &; PAGE'MANUF'G CO· .". ,FETTES IMPORTING 00.

865

lOSS and expense by a judicialbrder pending the tbat it would be better to propose to the Provident Savings Bank to take the attached property by ari absolute conveyance, on condition that it would cancel its OWn debt and discharge the debts of the other attaching creditors. Such proposition was accordingly made to the bank was accepted. The bank subsequently carried out the'arrangement, and received as the net proceeds of the sale prbperty the sum. of $17,306.06. There is no doubt that the importing company received more for the propertythah its actual value, inasmuch as debts of the company to the extent of $31,373 were canceled by the transaction. The praye]; of the· bill, is in substance that the court will decree that the importing company had become dissolved within the meaning of the' Missouri statutes prior to the levy of said writs of attachment; that the funds realized by the Provident Savings Bank from the sale of the attached property be declared a trust fund for the benefit of creditors of the importing company; and that the directors of the company be held as trustees of the assets which 'were attached and subsequently transfel'l'ed to the bank. In other words, this biU proceeds' upon the theory that the insolvency of the corporation prior to the suits in attachment operated as a dissolution: of 'the company; that the' directors of the company, by virtue of its insolvency, lost their ordinary power of control over the affairs of the corporation, and became technically tuustees of its assets, 'holding the same for the benefit of aU ,the creditors. Complainants accordingly seek to follow the trust fund into the hands of those who have received the same, and compel 'them to account, and"at the same time they seek to charge the directors as for a breach of trust. One fallacy that underlies the theoryof the bill consists in the as!lt1mption that'the insolvency of a corporation will of itself operate to d.issolve the bady and make' ,the directors mere trustees· of its Msets, Such is not the law. The insolvency of: a corporation,suspension of business, and failure to hold corporate meetings, has in many cases been held to create a practical dissolution for ,the purpose of rendering certain statntory remedies against shareholders available; but ordinarily mere insolvency does not impair the powers of a corporation. So long as a corporation remains "a going concem"-that is to say, continues to transact its ordinary business-the corporate life continues, and the power of its directors isunaltered,even though the corporation is embarrassedor even insolvent. There is this limitation, however, upon the power of the directors of an insolvent corporation. whieh has been recognized in a great many cases, and rests upon solid ground, namely, that directors cannot declare preferences in favor of themselves if they are c..reditors of the cor{)oration when the insolvency of the company has been ascertained. and a suspension of business is imminent. Mor. Corp. § 579; Lippincott v. Shaw Oat"l'iage Co., 25 Fed. Rep. 577, and c,ases cited. The limitation in question rests upon the fact that directors occupy a fiduciary position, and should not be permitted to profit thereby to the detriment of other corporate creditors. Possibly the principle might well be extended so as to prohibit the directors of a corporation from v.30F.no.12-55

.FEDERAL REPoRTER;

granting preferences to third parties whentl5.e'corporation is confessedly", insolvent and is unable to extricate itself from financial difficulties. Strong reason no doubt 'exists for regarding the directors of a corporation from such time forth '. merely as trustees of the corporate assets for the benefit of all the creditors, and as accountable for ,the proper adminisa trust fund. Marr v. Bank, ' tration of the same like other 4 Cold. 471; Willia'Tlts Y. Jones, 23 Mo. App. 143, and cases cited. But" conceding this to be so, it by no means follows that relief can be granted in the present case, ' When the attachments were ·levied in this case-. the corporation was. transacting its ordinary business, and making an earnest effort to relieve itself from financial embarrassment. The attach-" ments took the property of the corporation out of the custody of its officers.The directors had confessedly no means to prosecute litigation to effect a discharge of the. attachment liens, and were advised that such· attempt would likely prove unsuccessful, and would certainly lead to a. great sacrifice of the corporate property. Under, these circumstances, and not with any viewoideelaring a preference,thedirectors gave their was preserved consent to an arrangement whereby the corporate from sacrifice., and made to pay as much as possible of the corporate debt; Certainly there is no ground for holding the directors individually responsible to these complainants for the value oithe, attached property, as for abrellch of trust, considering the circumstances under which they were compelled to act, and the motives that prompted their conduct. And in my judgment there is nO gren.ter reason for holding the ident Savings Bank accountable to these complainants for the proceeds of the corporate property or a portion thereof. When the attachments were levied/the importing company was not a dissolved corporation, within the purv:iew of the Missouri statutes. It was "a going, concern,"and had not abandoned its franchise. That it was insolventadlllits of no doubt, but .that fact was not sufficient to pre-. elude corporate creditors from resorting to the ordinary legal remedies for the enforcement of their demands. If the directors of the importing company had defended against the attachments on the ground that the corporation had become dissolved within the meaning of the Missouri statutes,.Bnd that the corporate assets by reason of such dissolution could not. be attached ih a strictly legal proceeding, the defense in my judgment could not have been maintained on the proof contained in: this record. It has never been h6Jldrinderany local statute, so far as I am aware, that the mere insolvencyofa corporation prevents a creditor a valid lien upon its who isawal'e of such insolvency from property by virtue of a writ of attachment, and such is not the general rule of law in .the absence of an express statute. I accordingly conclude that the attaching creditors including .the bank are entitled to the fruits. of their superior diligence·. ' The bill is therefore dismissed.

The transportation of from one state to another is interstate commerce, whether the carriers engaged in moving it, or the vehicles on which it is borne, cross the line of the state or not. " This act does not include or app'ly to all carriers engaged in interstate combut only such as use a raIlway, or a railway and water-craft, "under common control,management,or arrangement for 8 continuous carriage or shipment" of property froJ:D one state to another; nor does it apply to the carriage of property by rail wpolly within the state, although shipped from or destined to 8 place without the state, so that such place i8 not in a foreign country.

The Oregon Railway & Navigatfon Company carries certain kinds of goods on its steamers forth and back between Portland and San Francisco at special andteduced rates. The Oregon & California Railway, under the management Of the petitioner, carries,the same kinds of goods forth and back betwa,en ,Portland and Ashland, and way-stations in Oregon, at special and rednced rates. The Oregon Pacific Railway Company carries the same kind of fr00dS forth and back between certain points on the line of the Oregon & Cahfornil!o road and San Franciscovia its railway from Albany to Yaquina bay, and'thence by steamer, at reduced rates, and thereby competes with the Oregon & California Railwa;y: and the Oregon Railway & Navigation Companyfor business between sll.1d points and San Francisco. The Oregon Railwar. & Company and the receiver of the Oregon & California RaIlway act mdependently, concurrently, in making these reduced or freight receipt is given, nor is either rates, 'but riO' through bill of interested in or liable for the carriage of the goods beyond its own line of transportation. Held, that the Oregon & California road and the steamers of the Oregon Railway & Navigation Company in the carriage of the goods in question are not "used under any common control, management. or arrangement for ,a continuous carriage or shipment" thereof to and from San Francisco, within the intent and meaning of ,the act, and that the carriage and handling of said goods, so far as the receiver is concerned, is performed , wholly within the state, and therefore specially exempted by the terms of the act from its operation, provided the same are not directly shipped to or from ' a foreign country. (ByllabU8 by the Court.)

SMlE-CASE IN JUDGMENT.

Petition for Instruction under the interstate commerce act. John W. Whalley, for petitioner.
DEADY, J. The road of the Oregon & California Railway Company is 400 miles in length, and lies wholly within this state, between Portland and Ashland, near the southern boundary thereof. It is operated at present by a receiver of this. court heretofore appointed on the application of the plaintiff, in the pending suit of Harrison v. Oregon &: C: Ry. Co., to enforce the lien of a mortgage thereon., On March 30, 1887, the receiver, Mr. Richard Koehler, filed a petition in this court, asking for instruction whether the Oregon & California road is within the purview of the interstate commerce act lately passed by congress, when engaged in carrying freight destined to or coming from a point or place without the state, under the circumstances herein stated.